Mark Mobius: Emerging markets bright spots post-Brexit

On Friday 24 June financial markets around the world awoke to a post-Brexit hangover. The UK voting to leave the European Union left many investors surprised and the uncertainty of the situation and what comes next hit all markets.

The emerging world was far from exempt, with the MSCI EM index experiencing a sharp decline. However, most quickly rebounded. We believe the longer-term impact for emerging markets could actually be positive, since the centre of gravity for capital markets activity could move away from London toward the Far East.

What is more, emerging markets’ trade and investment is widely diversified. In fact, the amount of trade with the UK is relatively small for most. There are some markets where ties to the UK are greater and the impact could be felt more acutely: for example, some Southeast Asian nations with historic connections could be negatively impacted. However, there could be a silver lining for certain Eastern European countries in the EU, with the potential move of some manufacturing and services from the UK to keep costs low.

As markets begin to rebound from the Brexit shock, investors should recognise the unique differences among individual emerging countries. I recently had the opportunity to visit Thailand
and observe that, thus far, its stockmarket has been relatively resilient amid the bouts of global market volatility following the EU referendum. Indeed, we believe the economic impact is likely to be relatively light for countries in Southeast Asia in general.

And while the British people’s decision to leave the EU has sparked fears of a rise in discontent with government and policy in other countries, including Thailand, discontent can be constructive if it results in positive economic and social reforms. Thailand’s government has been pursuing pro-growth agendas and seems committed to extensive market-friendly reforms and infrastructure investment, which should be an important driver of economic performance going forward.

“The Brexit vote shows the world that political instability is not concentrated in emerging markets”

Additionally, officials in Thailand have commented that, while the impact of Brexit may shave 0.1 per cent off 2016 GDP growth projections of 3 per cent, trade talks with the EU will not likely be affected and the country could potentially implement new deals with the UK as an individual nation more quickly than in the past.

Although there appears to have been a general flight out of so-called “risk assets” in late June, which has impacted emerging markets in general without regard to individual country or company fundamentals, the Thai equity market has been rather resilient.

Thailand’s GDP growth has been stable, with a rise in tourism and domestic demand helping to offset the impact from a contraction in merchandise exports this year. With this in mind, we remain optimistic on the market’s longer-term prospects and are not overly concerned about recent Brexit noise.

Generally speaking, Brexit actually brightens our view of emerging markets and the investment potential we see for the long term. The vote shows the world that political instability is not concentrated in emerging markets. While volatility may be with us for the foreseeable future, the markets have already begun to readjust. Part of the volatility was related to the surprise element of the vote; the leave scenario simply was not priced in properly.

When it comes to monetary policy in emerging markets and the US, the Brexit result should not impact it too much. Once the volatility is over, the Federal Reserve will likely continue its policy analyses based on the numbers coming out of the US on employment, growth and inflation.

The big question for market observers, of course, is the knock-on effect in the EU more broadly. If it is perceived that other members may decide to leave, then the uncertainty will continue and that could be bad for both European and US markets. However, emerging markets should be able to differentiate themselves, and individual countries should be able to bounce back.

Recommended

Time flies. Last month saw the second anniversary of the election of Narendra Modi as India’s prime minister. At the time of his election, expectations were sky-high that Modi could set his country on the path to economic success and improve its global standing. Satisfying or even exceeding the hopes and expectations of well over […]

Premier Asset Management director of multi-asset funds David Hambidge has boosted exposure to UK and Asian equities despite the recent turmoil in China. Hambidge, who has managed the £686m Multi-Asset Distribution fund since 1999, says recent stockmarket falls are “long over-due” and the way he positioned his fund was “waiting for a correction”. Hambidge and his multi-asset […]

Did you know that Chinese online shoppers spent some $5.7bn on a single day in November last year? That more and more well-heeled Indian consumers prefer to buy their tea from a pharmacy? Or that urban Thais visit a hypermarket at least once a week, spending around half their monthly bills on groceries? For most […]

Even over the long term, real interest rates aren’t expected to rise much above 1 per cent. So where may investors find income? James Foster and Jacob de Tusch-Lec, co-managers of the Artemis Monthly Distribution Fund, examine the opportunities Last December, the Bank of England asked two big questions. First: how far have ‘real’ interest […]

Jamie Clark – Business Development Manager The recent report from the Pensions Policy Institute demonstrates the sheer scale of auto-enrolment so far and what we can expect in the future. We’ve pulled out the key information to save you reading the full report. Auto enrolment in numbers Sources: Pensions Policy Institute, The Future Book: Unravelling […]

Newsletter

Latest from Money Marketing

As discretionary fund managers continue to grow in assets and importance in the adviser community, Money Marketing research has cast new light on the market’s impact on planning. More than 400 advisers and paraplanners responded to a Money Marketing survey on the DFM market. Ninety per cent of respondents used at least one DFM and […]

HM Revenue & Customs has published guidance on how new income tax bands in Scotland will affect pension schemes and their members. The note is a response to the Scottish Government’s confirmation it will introduce five income tax bands for 2018/19. Pension savers in Scotland currently receive pension tax relief at their marginal rate but […]

SimplyBiz Group is considering an initial public offering of £150m on the London Stock Exchange. According to a Reuters report, the potential float could value the company between £140m and £155m and is expected to raise £30m of new money. SimplyBiz joint group chief executive Matt Timmins confirms the business has recently appointed Zeus Capital as […]